The pros and cons of secured loans



When it comes to personal finance, one area that many find it difficult to fully understand is secured loans.

Despite thousands of secured loans taken out in the country each year, many people are not fully aware of the risks they are taking, according to

Many guides on the internet analyze the main points that finance is secured against your property and that people who fail to keep up with repayments face danger or repossession. While these are two very valid points that are certainly worth knowing on their own, they do not provide enough information for people to really appreciate what they are getting into.

To add meat to the bones, here are more details on the pros and cons of taking out a secured loan from a bank / lender.

Benefits of secured loans

* Your monthly payments can be reduced by spreading them out over a longer period of time (be aware that while this may be beneficial in the short term, it could mean that you are actually paying more total interest over a longer period).

* If you decide to take out a secured loan rather than a re-mortgage, you can avoid the potential problem of losing the special rates you currently enjoy on your existing mortgage agreement.

* Modifying your mortgage to raise additional funds could mean facing significant prepayment charges, taking out a secured loan to avoid this.

* A secured loan can be used for any purpose as long as it is legal, raising additional funds through a remortgage may have usage restrictions.

Disadvantages of secured loans:

* The interest rates on secured loans will be higher than for a mortgage; this reflects the risk incurred on behalf of the lender, even if you, the borrower, have provided security against the principal. Another reason is that the lender only has what is called a “second charge” on your property.

* If you plan to use your secured loan to buy a new vehicle or a “white product” ie a washing machine, you may well end up with debt long after the loan expires. usefulness of your purchases.

* Upfront fees such as appraisal fees and arrangement fees will increase your expenses.

* Paying off your secured loan each month can leave you strapped for cash to face other bills. The temptation to borrow more to meet these demands presents the very real risk of descending into a debt spiral.

When considering the possibility of taking out a secured loan, it’s important to weigh the pros and cons to make sure you make the right decision. If there is any doubt in your mind, the best thing to do is speak to an independent financial advisor to discuss your options.

If you think this form of borrowing is right for you, make sure you get the best deal possible, compare loans guaranteed by your banks to browse the market for the best deals currently available.

It is important to remember that by taking out a secured loan you are putting your home at risk, it is a decision you want to make with confidence for your own peace of mind.

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